Good day, everyone, and welcome to the Third Quarter 2025 Parsons Corporation Earnings Conference Call. Please note that this conference is being recorded. Now I will hand the call over to the Vice President of Investor Relations, Dave Spille. Please go ahead.

Thank you, Carmen. Good morning, and thank you for joining us today to discuss our third quarter 2025 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. On the call with me today are Carey Smith, Chair, President and CEO; and Matt Ofilos, CFO. Today, Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our third quarter financial results as well as a review of our 2025 guidance. We then will close with a question-and-answer session. Management may also make forward-looking statements during this call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-K for fiscal year end December 31, 2024, and other SEC filings. Please refer to our earnings press release for Parsons' complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements. Management will also make reference to non-GAAP financial measures during this call, and we remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures. And now I'll turn the call over to Carey.

Thank you, Dave. Good morning. Welcome to Parsons Third Quarter 2025 Earnings Call. This quarter, we continued to deliver strong performance in a dynamic global environment as an advanced and differentiated technology leader that's aligned to the administration's and global priorities in national security and infrastructure, our portfolio is strategically positioned to continue to capitalize on long-term macro environment trends. In addition, we operate with speed in delivering operationally relevant solutions at a time where our customers need companies that can deliver rapid results. During the quarter, we continued to achieve industry-leading organic revenue growth, excluding our confidential contract, significantly expanded our adjusted EBITDA margins, exceeded our cash flow expectations and won strategic contracts. In addition, our win rates and hiring retention remained strong and we completed another accretive acquisition after the quarter ended in the fast-growing and profitable water market that strengthens our capabilities and enhances our Florida presence. Turning to our third quarter financial results. Our adjusted EBITDA, adjusted EBITDA margin, and cash flow results exceeded our expectations, and our total and organic revenue growth rates, excluding the impact from our confidential contract remained strong at 14% and 9%, respectively. This includes 18% total revenue growth in critical infrastructure and 9% in Federal Solutions. This strong growth in both segments highlights the strength and synergies of our diversified portfolio, our strong hiring and retention, the successful integration of our acquisitions and our alignment to priority spending areas. During the third quarter, we also delivered 60 basis points of margin expansion to 9.8%, $163 million of cash flow from operations and reported a book-to-bill ratio of 1.0x for the quarter and trailing 12 months. This continues our streak of having a quarterly trailing 12-month book-to-bill ratio of 1.0x or better since our 2019 IPO. Finally, we are reiterating our 2025 adjusted EBITDA and cash flow guidance ranges at the midpoint and we're modifying our revenue outlook to reflect delays in sole-source task order awards products and material procurements. In addition to delivering solid financial results, we won 4 contracts over $100 million in the third quarter with 2 representing new work. Significant third quarter contract wins included a new large 10-year single-award task order contract as an exclusive subcontractor for design and modernization on the Holston Army ammunition plant government-owned contractor operated contract. We booked $50 million on this contract during the quarter. This win continues our success of winning industrial-based upgrades as per the $18 billion modernization plan and is our fourth contract win supporting the Army customer that's valued at more than $100 million. A 6-year $133 million authorization to continue serving as the lead designer for the Georgia State Route 400 Express Lanes. This project will add new Express Lanes and use state-of-the-art traffic, incident management and digital twin systems. As a Tier 1 focused state for Parsons, this expands our Georgia Department of Transportation presence with the state of Georgia expected to spend more than $20 billion over the next 5 years. We were awarded 2 new multiyear single-award defense and security contracts by Middle East government customers. One contract valued at more than $100 million represents new work to lead the design review and project and construction management of national security infrastructure. While the second contract is to design border security infrastructure and facilities. These contracts reflect the strength of Parsons' synergistic portfolio and our ability to bring comprehensive national security, critical infrastructure protection and program management capabilities to our Middle East and critical infrastructure customers. And during this quarter, we booked $107 million for these 2 contracts. MPA delivery partners, a joint venture of 3 companies, including Parsons is the managing partner was awarded a $665 million, 4.5-year contract extension by the Gateway Development Commission to continue managing the successful delivery of the Hudson Tunnel project. This project will build a new two-tube rail tunnel under the Hudson River and rehabilitate the existing 115-year tunnel as well as 9 miles of new passenger rail track between New York and New Jersey. We were awarded an $88 million task order under the Air Base Air Defense contract. Parsons will provide integration, upgrades procurement and training across the Europe and Africa areas of responsibility for the United States Air Force. This contract includes a 1-year base period and two 1-year option periods, and we booked $82 million during the quarter. For the first 9 months of 2025, we've been awarded over $190 million in task orders on this IDIQ vehicle. Air Based Air Defense is increasingly important around the globe to safeguard military operations and Parsons is an industry leader in this domain with innovative solutions designed to rapidly detect, alert, deny or defeat threats, ranging from low-cost unmanned vehicles to sophisticated hypersonic weapons. Parsons was also awarded 3 PFAS contracts with a collective value of $23 million. These wins span both our Federal Solutions and Critical Infrastructure businesses and expand our portfolio in the highly strategic and rapidly growing PFAS market. Year-to-date, we've won nearly $70 million in PFAS contract awards, and the PFAS market represents a $40 billion addressable market for Parsons. These wins represent revenue synergies with our TRS Group acquisition. In addition to these large and important wins, we continued our successful track record of acquiring strategic companies in high-growth markets that strengthen our portfolio and have revenue growth and adjusted EBITDA margins of 10% or more. After the third quarter ended, we acquired Applied Sciences Consulting, a Florida-based engineering firm that specializes in water and storm water solutions for cities, counties and water management districts across the state. Water is our fastest-growing and most profitable market within our North America infrastructure business unit. This acquisition positions us to capitalize on Florida's significant investments in water infrastructure, resiliency and quality. We continue to deploy capital across both business segments to take advantage of the significant tailwinds in our markets and 4 of our last 6 acquisitions have been in our Critical Infrastructure segment. During the quarter, the company was recognized as one of the world's best companies by TIME and one of the best led companies by Glassdoor, we're particularly pleased with the Glassdoor rating since we were selected by our employees. Parsons also received the prestigious Diamond Award in the Structural Systems category from ACEC New York for our work on the Brooklyn Bridge Rehabilitation Project. Looking forward, we are excited about our growth opportunities. Our relentless focus on strong program execution and our delivery reputation provides customers with the confidence they need to choose Parsons as their contractor of choice for their large, most complex and mission-critical challenges. In addition, our unique and synergistic critical infrastructure and Federal Solutions portfolio which consists of 6 growing, profitable and enduring end markets is expected to drive mid-single digit or better organic revenue growth, excluding the confidential contract for the foreseeable future. This growth outlook excludes the FAA brand-new air traffic control system contract. Regarding this opportunity, we believe a decision is imminent, and we felt we offered a compelling bid given we're the #1 program manager in the world offered a transformational approach strategically partnered with IBM, have strong past performance and assembled a team that is vendor-agnostic and understands the FAA. In Critical Infrastructure, we continue to win some of the largest and highest priority projects in our geographies and are expanding into high-value adjacent markets by leveraging our entire portfolio with long-term tailwinds and 20 consecutive quarters of greater than 1.0x book-to-bill. We expect continued growth into the next decade. In the United States, our focus on hard infrastructure such as roads and highways, bridges, airports and rail and transit is aligned to spending priorities. The infrastructure investment and Jobs Act provided states with the confidence they needed to move forward with major infrastructure projects and discussions on the next surface transportation bill are underway. This bill is expected to provide additional budget for increased U.S. infrastructure spending. Our Middle East infrastructure business also continues to excel. Our more than 60-year history in the region, outstanding reputation and Saudi joint venture has positioned us as a trusted partner to our customers and is a competitive advantage in the region. We see significant demand for our engineering and program management solutions across the region as governments implement their strategic visions and prepare for upcoming world events. In addition, our expansion into the defense, security, hospitality and industrial manufacturing sectors has contributed to our recent growth as these markets are receiving major investments. In Federal Solutions, Parsons has a strong position and differentiated capabilities in aviation modernization, integrated air and missile defense, space superiority, counter unmanned air systems, cyber operations, electronic warfare, industrial-based modernization and border security with a strong alignment, the administration's priorities and budget. Parsons is well positioned to immediately capitalize on opportunities in these areas. In summary, I am very pleased with our strong execution. We continue to deliver industry-leading growth with 14% total revenue growth and 9% organic growth, excluding our confidential contract. We expanded margins by 60 basis points, exceeded our cash flow expectations, won defense contracts in the administration's priority areas, and our Critical Infrastructure segment continues to hit on all cylinders by delivering double-digit organic revenue growth and adjusted EBITDA margins. Our win rates and hiring and retention remain strong, and we continue to leverage our balance sheet for strategic accretive acquisitions. We also have a total backlog of nearly $9 billion, of which 72% is funded, approximately $11 billion of contract wins that we have not yet booked, a $58 billion pipeline that includes more than 115 opportunities of contracts worth $100 million or more and 15 opportunities worth $500 million or more. We believe our healthy forward-looking metrics, strong operating teams and industry tailwinds position us to outpace industry growth rates and continue to deliver significant long-term shareholder value. With that, I'll turn the call over to Matt to provide more details on our third quarter financial results.

Thank you, Carey. Q3 financials were highlighted by strong revenue growth, adjusted EBITDA margins and free cash flow ahead of expectations. In addition, we continue to leverage our balance sheet and completed our third accretive acquisition of the year in the strategic water market. Turning to the details of our third quarter results. Excluding our confidential contract, total revenue grew by 14% and 9% on an organic basis. These increases were driven by double-digit growth in our critical infrastructure protection, transportation and urban development markets. Total revenue, including the confidential contract decreased 10% from the prior year period and was down 14% on an organic basis. SG&A expenses for the third quarter increased 6% from the prior year period. This increase was primarily driven by the inclusion of recent acquisitions and focused investments in bid and proposal activity and critical hires in support of our large strategic pursuits and pipeline aligned to the administration's priorities. Adjusted EBITDA margin expanded 60 basis points to 9.8%, driven by improved program performance and accretive acquisitions. Adjusted EBITDA of $158 million decreased 5% from the prior year period, driven by the revenue decline on our confidential contract. I'll turn now to our operating segments, starting first with Critical Infrastructure, where third quarter revenue increased by $129 million or 18% from the third quarter of 2024. This increase was driven by organic growth of 13% and inorganic revenue contributions from our BCC and TRS acquisitions. Organic growth was driven primarily by the ramp-up of recent contract wins and growth on existing contracts in both North America and the Middle East. Critical Infrastructure adjusted EBITDA increased 83% from the third quarter of 2024, and adjusted EBITDA margin increased 360 basis points to 10.3%. These increases were driven primarily by improved program performance, the ramp up of recent awards and our accretive BCC acquisition. Moving to our Federal Solutions segment, where third quarter revenue increased 9% and 5% on an organic basis, excluding our confidential contract. These increases were driven by growth in our critical infrastructure protection, transportation and space and missile defense markets. Total Federal Solutions revenue, including our confidential contract, decreased 29% from the prior year period and 31% on an organic basis. Federal Solutions adjusted EBITDA decreased 40% from the third quarter of 2024 with an adjusted EBITDA margin of 9.2%. The adjusted EBITDA was primarily impacted by lower volume on the fixed-price confidential contract. Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q3 2025 was 62 days, an 11-day increase from the prior year period but still favorable to historical averages. This increase was primarily driven by lower volume on our confidential contract and the timing of collections in the Middle East. During the third quarter of 2025, we generated $163 million of operating cash flow, which was better than expected and drove free cash flow conversion of 135% for the quarter. Capital expenditures totaled $13 million in the third quarter, relatively consistent with the prior year period. For fiscal year 2025, CapEx is expected to remain in line with our planned spend of approximately 1% of annual revenue. Our balance sheet remains strong, and we ended the third quarter with a net debt leverage ratio of 1.4x. During the quarter, the remaining $85 million balance on the 2025 convertible senior notes was settled with cash on hand. Additionally, we repurchased approximately 323,000 shares in Q3 at an average price of $77.36 for an aggregate purchase price of $25 million. On a year-to-date basis, we have repurchased approximately 966,000 shares at an average price of $67.28 for an aggregate purchase price of $65 million. Turning next to bookings. For the third quarter, we reported contract awards of $1.6 billion, representing a book-to-bill ratio of 1.0x on an enterprise basis, which continued our streak with a trailing 12-month book-to-bill of 1.0x or greater in every quarter since our IPO. In Critical Infrastructure, we achieved a book-to-bill ratio of 1.1x which is the 20th consecutive quarter with a book-to-bill ratio of 1.0 or greater. In Federal Solutions, we reported a book-to-bill ratio of 0.8x. Our backlog at the end of the third quarter totaled $8.8 billion, a 1% increase over Q3 2024. Additionally, our funded backlog is the highest since our IPO at $6.4 billion, a 10% increase year-over-year. In terms of our guidance, we are reiterating the midpoint of adjusted EBITDA and operating cash flow. However, we are updating revenue guidance to reflect the impact of federal customer capacity constraints impacting timing of sole-source task order awards, products and material procurements, and the inability to recover in Q4 due to the extended government shutdown. We expect total revenue to be between $6.4 billion and $6.5 billion. This guidance represents total revenue growth of 14% and 10% on an organic basis, excluding the confidential contract. Including this contract, total revenue is anticipated to decline 4% at the midpoint of the range and 8% on an organic basis. Adjusted EBITDA remains between $600 million and $630 million. At the midpoint of our revenue and adjusted EBITDA guidance ranges, our margin increased to 9.5% from 9.3%, this represents adjusted EBITDA margin expansion of 50 basis points from 2024 and a 100 basis point increase since 2023. Operating cash flow is expected to be between $380 million and $460 million. While the midpoint remains the same, we did want to widen the range to incorporate any potential impacts from the extended government shutdown. Other key assumptions in connection with our 2025 guidance are outlined on Slide 11 in today's PowerPoint presentation located on our Investor Relations website. With that, I'll turn the call back over to Carey.

During the third quarter, we delivered double-digit revenue growth, excluding our confidential contract, 60 basis points of margin expansion, free cash flow conversion of 135% and we completed a strategic acquisition while maintaining our strong balance sheet, which will enable us to make future accretive acquisitions. We remain optimistic about our future, given our team's proven execution, the tailwinds we have in both segments, our strong total and funded backlog and the robust pipeline of large opportunities we have to pursue. With that, we'll now open the line for questions.

Our first question comes from Sangita Jain with KeyBanc Capital Markets.

So Carey and Matt, it seems there was some revenue from the confidential contract in the third quarter. I understand it was a much smaller amount than the previous run rate. I was wondering if any of that is included in your fourth quarter guidance or if you still expect it to be zero.

Yes, there was some revenue included in our third quarter guidance. At this point, it's very small and immaterial. The program is in a wind-down state, so we're basically demobilizing.

Got it. And on C&I margins, it's three quarters in a row now that you've done 10%-plus margins. I know you were expecting a softer second half as you close out some legacy projects. So kind of I just want to get some more color on what may have driven the 3Q strength and if we should expect a 10% to 10.5% as the new run rate heading into '26.

Yes, I'll start, and Matt will jump in. But I would say, first and foremost, critical infrastructure has had outstanding program execution. We'd always indicated that we expected this business to be double-digit margins, and we weren't sure how quickly we could get there. And obviously, we've had 3 consecutive quarters to your point. So I would say continuing that solid execution looking forward. We've got some higher-margin business that will be coming in as we have been winning some new bids based on the demand that's out there, both in North America as well as the Middle East and then any acquisitions that we do are going to be accretive as well.

Yes. And to give some numbers on a year-to-date basis, to your point, CI is at 10.4%. So really great performance out of the CI business. Q4, we have modeled in kind of the high 9s, low 10s for a total year in kind of the low 10s, as I mentioned, but again, to Carey's point really strong margins out of the CI business, north of 10% throughout the year.

Our next question is from Andrew Wittmann with Baird.

I wanted to ask about the revenue this quarter and the guidance for the fourth quarter. It seems like the third quarter results were a bit lower than you anticipated. Carey, could you discuss the reasons for that variance? Additionally, regarding the fourth quarter guidance, I heard your remarks about federal customer capacity and some issues with materials. Could you clarify what you meant by materials procurement? Was it mainly due to the government shutdown, or were there other factors involved? Also, is the federal customer capacity issue related to the shutdown, or are there different underlying reasons? Understanding the changes or trends in top line performance is crucial for today's discussion.

Thank you, Andrew, for the question. Our main challenge this quarter was related to timing. We experienced delays with contracts that were already awarded to us. A significant part of the delay was due to our Air Base Air Defense contract, where a task order was issued later than expected. Additionally, we are still waiting for some awards related to our defensive cyber threat hunt kit, which has been affected by the shutdown. In the second quarter, we anticipated a stronger second half compared to the first half and were hopeful for progress. Unfortunately, we continue to experience delays, so we aimed to ensure we could meet our guidance. Consequently, we had to consider the possibility that the shutdown could extend until the end of the year.

Yes. And Andy, I'd just add, if I look at Fed and I'll talk excluding the confidential contract, call it, 9-ish percent growth for Q3, we are forecasting about 15% for Q4. So to Carey's point, some was a slide to the right from Q3 to Q4. We do expect acceleration in Q4, just with the government shutdown, the timing on task order awards, approvals on material purchases, things like that. All those things are kind of impacting our ability to recover before the end of the calendar year, but should be obviously first half next year.

Got it. Okay. Great. And then I guess from my follow-up, I wanted to just drill in and get a little bit more from you on FAA. Obviously, the government has shutdown. This one notionally had a October 31 award target date. Obviously, the government controls that and can slide. But I was just wondering, you said imminence on the call. Like are the contracting personnel at the FAA on staff? Is there a dialogue happening there? What can you tell us a little bit more detail on that one in particular?

Yes. Fortunately, the FAA brand-new air traffic control system is not impacted by the shutdown and an award is imminent. This program, again, is going to use the $12.5 billion of funding that was awarded under the reconciliation bill. This is a critically important program to our country. We need to improve the safety, reliability, redundancy and efficiency of the National Aerospace System. And in parallel, we have to transform that for the future. I feel that our team has offered a very compelling offer. Parsons, again, as the #1 program manager ranked by Engineering News-Record. This is the type of work we do for a living. We partnered with IBM as our strategic technology partner, and both we and IBM have very deep system engineering expertise. We also have the right team and a team that knows the FAA and has excellent past performance with the FAA. I mean, our motto has been right team, right time. We're ready now. We certainly look forward to partnering with the FAA on this brand new air traffic control system and achieving the results by December 2028.

Got it. So just as an addendum to that, then, I think in the past, you've talked about like the dollar amount of awards that you're awaiting notice on. I think in the quarter, this one, among others, many others, went in as awards that you're awaiting notice on. What does that metric stand out here at the end of the third quarter?

Yes. So awaiting notice of award right now is just under $10 billion, Andy. And that compares to prior years of an average between 4 and 6. So obviously, a big part of that is FAA, but all in all, just under $10 billion awaiting notice of award. So bids submitted awaiting adjudication.

Yes, I'd also highlight the strength of our pipeline. $58 billion is a record pipeline for the company. And the number of awards that we have potentially greater than $500 million being over 15 is also a record for the company. So we're really seeing a lot of needs and demand for our business across both segments.

Our next question is from Tobey Sommer with Truist.

Given the slightly lower top line exiting the year, I'm just wondering how we should think about modeling next year based on the midpoint of the new top line guidance, it looks like consensus is around 8% total revenue growth, which I know wouldn't necessarily be an organic number, but any color you could provide there without specific guidance, of course, at this stage would be helpful.

Yes. Obviously, we'll provide full year 2026 guidance during the February call. But to your point, solid run rate in Q4 positions us well for 2026. We've said previously mid-single digit or better organic growth, excluding the confidential contract. So that's the number that we're holding to. That would exclude any what I'll call binary large items, think FAA or others that Carey mentioned, Southern border or Golden Dome that are obviously large items. So mid-single digit or better organic, excluding confidential contract and supported by a solid Q4 run rate.

And Matt, what would the total contribution this year be from confidential contract just so we have that math equation squared away?

Yes. It's about $350 million, so just 5-ish percent.

And Carey, you highlighted water as an area with the recent acquisition in critical infrastructure, you talked about the growth, et cetera. Are there any verticals within critical infrastructure that you would like to sort of further fortify or maybe gain exposure where you might not have it currently?

I would say water and environment, which is one of our 6 end markets has been rapidly growing. We expect this year for that market to be around $650 million. And I mentioned the water portion of that is also our most profitable. So we have been kind of doubling down there. The acquisition of Applied Sciences Consulting was critical for us because Florida is spending billions of dollars and making sure that they have resiliency. And this company is very well positioned to help us capitalize on it by combining our collective capabilities. So it has been an area of focus for M&A.

Okay. And then during the shutdown, there's been kind of a new wrinkle with the administration halting funding of various things in states. Have you seen any impact from this particular facet of the shutdown. And in particular, maybe a comment on Gateway would be interesting. We have our offices nearby and it looks like there's plenty of equipment and workers still plugging away, but would love your perspective.

Yes. And you're absolutely right there, Tobey. So the Gateway program continues, as I mentioned on the call, we were awarded $665 million follow-on effort for that. We have 5 major construction projects that are underway on the Gateway program as we speak and the state funding that's available for Gateway is $5 billion. So we continue to work.

Our next question is from Gautam Khanna with TD Cowen.

I was wondering if you could comment on the EBITDA contribution from the confidential contract in Q3 and for the year, just so we have a sense for what the comp to overcome is in '26?

Yes. Round numbers, Gautam, when you think about this as a fixed price international contract. So it would be accretive to our Fed business, I think kind of low double-digit margin.

Okay. There seems to be just two bidders for the FAA modernization opportunity, which are you and Peraton. I've heard some concerns about potential risks linked to the contract terms. How are you planning to mitigate these risks for the company? Moreover, how did you approach this bid to ensure that winning it would be advantageous rather than something to worry about?

Yes. First, as a company, we will not take that business. And the FAA brand-new air traffic control system is not a bad contract. It's a good contract. There are only 2 bidders. There were various reasons for that. I think we got off the dime very quickly, announced our partnership with IBM back in June. We tend to be a very agile company that delivers operationally relevant solutions. And so we kind of got out pretty fast. And I think some of the competitors were worried about that. Other competitors dropped out due to potential organizational conflicts of interest because if you want to provide systems, it's kind of hard to sit in an integrator role where you may be selecting and evaluating and acquiring those systems. So we're very excited about the FAA contract. It's going to be a good contract, and we look forward to an imminent announcement.

Our next question is from Mariana Perez Mora with Bank of America.

You highlighted space and missile defense as a growth driver for FS. I was wondering if you could talk a little bit more about that.

Yes, you're breaking up a little, but I think I caught the gist of it. So space of missile defense being a growth driver. First, I would start with our missile defense contract. We are the system engineer and integration contractor for the Missile Defense Agency on the team's contract. That work will lead into Golden Dome efforts, and we are starting to ramp up in anticipation of that. We expect some of the Golden Dome funds, there was $25 billion in the reconciliation bill to start hitting around the December time frame, and we've been closely working with the Missile Defense Agency on areas like architecture. Relative to our space business, we're involved in space situational awareness, an area that's seen uptick as there's been a lot more activity going on in space, we're also involved in space ground systems. We've delivered over 170 different ground systems for a variety of customers. And then an area of space we're particularly excited about would be our assured position navigation and timing solution. We've partnered with Globalstar. We're using their constellation and our software-defined radio capability to be able to get location information in the case of GPS' jam. A great example is we just deployed it over in the Ukraine and European theater and our timing results and location results were better than anticipated and additional units have now been purchased for the INDOPACOM region. So exciting business. We have seen growth there, and that's an area that we project to continue to be strong, particularly as it relates to the Golden Dome program.

Our next question is from Sheila Kahyaoglu with Jefferies.

Maybe if we could talk about 2 questions. First on FS growth. How do we think about the FS growth given the order decline in the quarter? How much of it was attributable to the shutdown? And I know, I think, Matt, you said mid-single-digit growth outlook for '26. How we could think about the order flow and the pipeline selling together to get that growth outlook?

Yes, I'll start. Matt will join in. Regarding growth and how much is related to the shutdowns, it's a bit difficult to determine because we're facing two issues simultaneously. One is the federal contracting capacity, which has experienced some delays in approvals. The second is the shutdown, which primarily impacted our recovery in the fourth quarter due to uncertainty about its duration. We are planning for it to persist throughout the year. The main challenge for us has been obtaining materials for existing contract awards. I want to emphasize that this is not about acquiring new business or any program losses; it is strictly a timing issue.

Yes. If I look at the total year 2025 forecast, excluding confidential contracts, the outlook shows high single-digit growth, with a total growth of 11%. The business is performing quite well. If we can maintain that run rate, it's above market and we are gaining market share. We are pleased with these growth rates.

Got it. And then maybe if I could ask one on CI, please. The performance there has been pretty good. Margins are now hitting this 10% stride, what's driving that? How do we think about mix going forward?

CI has had an excellent year across all areas, with new business wins for the past 20 quarters and strong profit margins throughout the year. This quarter, achieving 18% total growth and 13% organic growth is remarkable. We are observing robust growth in both North America and the Middle East, and this trend is expected to persist. The IIJA funding has not yet reached its peak, which will occur around 2028, and will continue to provide benefits for 6 to 8 years afterward. The next 5-year surface transportation bill is expected to pass by November 2026, adding to our current growth. Our expansion in the Middle East has been strong, with four consecutive years of double-digit growth. We've not only been growing in urban development and transportation but have also ventured into three new markets—defense, security, and tourism and hospitality—that are seeing significant investments. Our focus on critical infrastructure has given us strong long-term advantages, and we have high success rates in both North America and the Middle East. However, the largest opportunities are currently within the federal sector. We discussed the $12.5 billion allocated to the FAA as we await an imminent award, along with $25 billion for the Golden Dome project, where we are well positioned for system engineering and integration, as well as in nonkinetic effects and command and control capabilities. There’s also $25 billion for border security out of a total of $161 billion, much of which is relevant to us since we operate in border security worldwide. We currently have two major bids in the border security area. Additionally, there’s $12 billion in new funding for Pacific Deterrence, where we are well positioned due to our operations in Kwaj and Guam. CI is rapidly expanding, and the key opportunities lie mainly in the federal sector. An important project that spans both groups is the rebuilding of Syria, where we plan to assist in eliminating chemical weapons and later in reconstruction, backed by Gulf countries. We are also looking at the reconstruction of Ukraine and Israel-Gaza. Lastly, a significant opportunity for us lies in critical minerals, leveraging our processing and refining capabilities as we work to bring critical minerals production onshore in the United States.

Our next question is from Louie DiPalma with William Blair.

Following up on your recent answer, it seems you've made significant progress with providing defense services to some of your Middle East customers. What types of solutions are gaining traction on the defense side? And what's the long-term outlook there?

Yes. So I'd say the areas that we've gotten into are kind of a combination leveraging our entire portfolio. So we're basically doing work for the Ministry of Defense that is infrastructure work due to the proprietary nature of it, I can't go beyond that. But if you think about infrastructure builds for the Ministry of Defense. Also on the security side, we're doing border security work. We've been involved in border security for a long time through our work with Defense Threat Reduction Agency Armenia, Lebanon, Georgia, other locations. We do work with customs and border protection down on the southern border, we've been involved a little bit with immigration and customs enforcement, and we do the counter nuclear smuggling detection and deterrence program for Department of Energy. So we've been able to take those competencies now and expand them, and we were awarded a job through the Ministry of Interior for border security in Saudi Arabia.

Excellent, Carey. And in addition to the FAA brand-new air traffic control systems contract that you're pursuing, you already have an existing FAA facilities contract and should that contract also benefit from the reconciliation bill funding? And related to this, are you starting to already receive awards in October? Or did you receive awards in October that were funded from the reconciliation bill funding? Is that funding starting to flow?

Yes. So I would say, to your first question, that contract will also benefit. That contract's technical support services contract. We've supported the FAA for 50 years as a company. We've been on the TSSC contract for 24 years, excellent past performance. And it will benefit from the brand-new air traffic control system separate from our integrator work that we're looking forward to receiving. As far as reconciliation funding, I would say it's going to start to flow, we think this month and next.

And Louie, just the numbers on your question around FAA. As we've mentioned previously, that is a growth driver for us. I mentioned transportation is a key driver. We're expecting that FAA contract to grow 25% to 30% this year in 2025. So to your point, it's a great growth driver for us with or without.

Our next question comes from Jonathan Siegmann with Stifel.

So maybe just back on the shutdown, you've made some really helpful comments on that. But maybe if you could talk a little bit about the other side, when the government is open, can we expect a surge of activity? Or is the backlog so great at this point that we might still be talking about capacity problems next year assuming the government opens in the next couple of weeks?

Yes, thanks. And one thing I should mention is 50% of our business, again, is not impacted by the shutdown because 50% of our business is not federal government-related work. But I would say as far as when the government's open, I do expect that we're going to see a surge because they are backlogged with contracting actions.

Yes. And so as I mentioned earlier, John, as I think about almost $10 billion of awaiting notice of award typically in the Middle East, processes quickly. So the majority of that is within the Federal group, that being 40% or 50% above the norm is evidence that there's a building backlog and hopefully, they'll transact quickly so that we can get working on these jobs.

They almost have to when you consider the reconciliation funds and the government's intention to spend those upfront over the upcoming years. To accomplish our goals, such as implementing the new air traffic control system, we need to meet our milestones by December 2028 without exceptions. We must deliver. Additionally, there are many other funding initiatives that require milestones to be met. Therefore, I believe we need to progress swiftly.

As we think about next year, you've already quantified the headwind from the confidential contract. Is there anything else that you'd highlight today that we should be thinking about maybe a larger recompetes in the classified area that we should be contemplating as we think about next year?

No. Fortunately, going into next year, our recompete rate is about 6% to 7%, so it's pretty small and there are no major contracts that are in that recompete. We secured our 4 contracts that are greater than $2 billion in July of 2021 is when the last one was won. So those have been secured for the next 7 to 20 years, respectively. That would be the 2 mine jobs, the FAA TSSC job in the Missile Defense Agency system engineering and integration job. So our big recompetes are still a ways out like 2029 time frame.

And our next question is from Noah Poponak with Goldman Sachs.

Matt, can you just level set me or remind me the numbers on Federal Solutions organic growth, excluding confidential. What was it in the first half? What was it in 3Q? And what do you now have for 4Q?

In the first half, we're looking at total growth of about 10%. For the second half, we're anticipating 12%, largely driven by a nearly 15% increase in Q4. While there will be a ramp-up in Q4, many of the items that were delayed from Q3 are now on track for Q4, which is what contributes to the sequential growth from Q3 to Q4.

Okay. Yes, I guess, how did you think about building that? I mean it's 1 quarter, but just given how that's progressed? how did you think about building that acceleration in 4Q versus 3Q or first 9 months in a government shutdown?

Yes. We do not take the decision to lower our top line guidance lightly, and it involved careful consideration of the outlook. We examined each program in detail, including ordered materials and the timing of product deliveries. Therefore, we are quite confident in the midpoint of our guidance. However, if there is a prolonged government shutdown until the end of the calendar year, it could influence us to lean towards the lower end of the guidance. Nonetheless, we anticipate that much of the information we are hearing will emerge from the shutdown in the coming weeks.

Okay. And Matt or Carey, I guess, we've been in this environment with lower outlays in some of your government customer markets, but you've still had that 10% federal core. If next year, some of the things that have gummed up the system get better, can that core accelerate? Or is that too optimistic just given the overall backdrop?

I would say that we have the opportunity to accelerate. I mentioned the very large programs that we have in front of us, and I feel we're well-positioned.

I was wondering if we could think about the diversified core FS, excluding any one large program that might significantly change the growth rate.

Yes. So this year, we'll deliver for federal for the full year, about 8.3% organic growth, again, which is industry leading. So I would say we're in all the right markets, not even talking about any of the game changer programs, and we've indicated that we would deliver mid-single-digit or better, excluding the confidential contract as we go into next year. That's excluding game changer contracts.

Okay. Can you frame for us for whoever wins FAA, approximately how large it could become on an annual revenue basis and then what the margins would look like roughly?

Yes. Unfortunately, because we're in a competition and the award is imminent, I can't share financial information at this time.

Okay. Last one, Matt, just on the FS margins because you had talked about confidential was accretive to the margin. And then as that came out, the margins came down a bit, but back up sequentially here nicely in the third quarter despite that. So as we move forward, what's your latest thinking on where the FS margin lands?

In the third quarter, cost type accounts for approximately 60% of our federal business. In a scenario where cost type exceeds 50%, we can expect some pressure on margins. We are comfortable targeting the high 8s to low 9s. Our acquisitions are aimed at long-term growth, with a target of over 10% EBITDA. While we have not yet seen a shift to fixed price contracts, we are open to it in many instances. Given the current mix, high 8s to low 9s appears to be a solid target. We have some promising opportunities, as discussed, including the Joint Cyber Hunt kit, which could provide additional product and material benefits. In Q3, we benefited from an incentive fee mentioned in Q2, and Q4 is expected to contribute positively with additional products. Overall, all these factors indicate that high 8s to low 9s is a reasonable expectation, especially with prospects for expanding products and acquisitions.

And ladies and gentlemen, this is all the time we have for your questions. I will pass it back to Dave Spille for final comments.

Thanks again for joining this morning. If you have any questions, please don't hesitate to call, and we look forward to talking to many of you over the coming days. Have a great day. Thank you.

And this concludes our conference. Thank you for participating. You may now disconnect.